In business, you're only as good as your relationships—especially if your business depends on vendors and suppliers to deliver products and services.
One of the most effective ways to maintain strong vendor relationships is paying them on time.
Enter invoice management, also known as invoice processing. Without effective invoice management processes, you may have trouble keeping track of due dates, getting invoices approved, and ensuring payments go out on time.
This guide provides a structured approach to managing invoices effectively and streamlining your processes with automation.
What is invoice management?
Invoice management is the process of efficiently handling the cycle of invoices in a business. This includes receiving, reviewing, verifying, and paying invoices you receive from vendors and suppliers.
In very small businesses, keeping track of vendor invoices is easy. But the larger your company, the more complicated the invoice management process becomes.
For example, it's not uncommon for vendors to send invoices to a point of contact outside of the accounts payable team. That invoice must be forwarded to the appropriate personnel, approved, and paid promptly.
Multiply that process by hundreds of invoices every month, and it becomes difficult—if not impossible—to rely on manual invoice management processes.
The invoice management process
Every organization uses a slightly different method for managing invoices. However, the general workflow usually looks something like this:
Step 1: Receiving invoices
Suppliers and vendors may send invoices via email, an online portal, or mail. Your company may have one point of contact for all invoices or multiple people receiving invoices and routing them to the accounts payable department.
Step 2: Entering invoice data into the accounts payable system
An accounts payable clerk may manually enter invoice details into accounting systems or use software to capture and enter invoice data automatically.
Step 3: Invoice review and approval
Employees in your accounts payable department match the invoice to the purchase order and/or delivery receipts to ensure the invoice is legitimate. Then, they're forwarded to the appropriate personnel for approval.
Step 4: Invoice payment
Once approved, your accounts payable department pays invoices. They may prepare paper checks for signature or use electronic payment methods for efficiency and traceability.
Step 5: Record keeping and reporting
You must maintain records of all invoices and payments for easy retrieval and audits. Depending on the company's processes, these records may be paper or digital.
Three biggest mistakes companies make with invoice management
Companies face three primary challenges in their invoice management systems: efficiency, accuracy, and security.
Concerned your business is at risk?
Here’s how to minimize your risk and overcome these three challenges that can disrupt your entire accounts payable process.
How automation keeps invoice management mistakes at bay
Invoice management software offers several advantages over traditional invoice management processes.
Let's look at some benefits of automating invoice management and how it can help your organization overcome efficiency, accuracy, and security challenges.
Streamlined data entry and approvals
Automated invoice management software can help overcome efficiency issues. You can quickly import invoices into the software without manual entry and simplify the approval process.
The right invoice management software can also integrate with your accounting software to reduce manual entry and speed up account reconciliations.
For example, BILL integrates with many of the most popular accounting software platforms, including QuickBooks, Oracle Netsuite, Xero, Sage, and Microsoft.
Cost savings
Automating invoicing processing allows your team to spend less time per invoice, lowering processing costs. This is ideal for organizations looking to scale.
How much can you lower your invoice processing costs with automation? It depends on your workflow and how many invoices you process each month.
However, a study by APQC published in CFO magazine found that the median cost per invoice dropped from $3.94 to $2.80 from 2018 to 2022, largely due to invoice automation.
When you multiply that savings by hundreds or even thousands of invoices per month, that's a significant cost savings.
Automating payment scheduling also allows you to take advantage of early payment discounts and avoid late fees.
Improved accounts payable accuracy
Automated invoice management software can encourage suppliers to send digital invoices for easier processing and tracking.
It also facilitates two or three-way matching, cross-referencing supplier invoices with purchase orders and delivery receipts to help you avoid duplicate payments and reduce error correction costs.
Fraud protection
Using an automated invoice management system, you can establish a single point (email, portal) for receiving all invoices.
This supports secure management and storing of confidential invoices and other connected company documents.
You can implement strict access controls and user permissions within your invoice management system.
This ensures your payment data is only seen by those with approved access. It also reduces the likelihood of fraud or modifications to your invoice data.
Enhanced compliance
The changing regulatory environment can impact your invoice processes, and it's tough for overworked accounts payable clerks to stay on top of new regulations and adapt to them.
The right invoice management solution provider can ensure your AP team has the most up-to-date information on compliance requirements for different jurisdictions and supports changes in regulations seamlessly.
How to start automating invoice management
Whether you're just getting started in your invoice management journey or want to incorporate additional layers of automation into your invoice processing routine, here are the steps you need to take to be successful.
Step 1: Define what you want to achieve
Before you start researching potential solutions or scheduling demos, defining what you want to achieve is crucial.
Do you want faster approval workflows?
Would you benefit from scheduling payments to take advantage of discounts or avoid late fees?
Do you want to eliminate manual activities like entering invoice details into your accounting system?
Do you want more visibility into your internal controls?
Getting clear about your goals sets the tone for your invoice management improvement project.
It also helps you remember the big picture while evaluating potential solutions instead of getting carried away by flashy sales pitches.
Step 2: Map your current invoice processing workflow
Assess your existing invoice processing workflow and map out all the steps involved.
Make sure your documented workflow includes:
- The starting point or trigger event for your invoice processing workflow
- Every step in the process, from receipt through storage
- Who is involved
- The systems and applications impacted by your invoice management process
Map out exactly how the process is actually happening now—not just what your documented processes say is supposed to happen.
This helps you spot loops, bottlenecks, and other areas that automation can improve.
Step 3: Map out your desired workflow
Now that you have a complete picture of your existing workflow, how would you like it to function?
Consider tasks that can be automated to improve efficiency, accuracy, and security, such as:
- Centralizing receipt of all invoices to a single portal or email address
- Matching submitted invoices to purchase orders and delivery receipts
- Submitting invoices for approval
- Defining deadlines to ensure payments are issued on time
- Recording invoices and payments in the general ledger
- Issuing monthly accounts payable reports and tracking KPIs
- Centralizing storage of AP records
Step 4: Choose the right software
Now that you've identified your goals, you can select an invoice management system that fits your business needs.
Some features and functionality to consider include:
- Flexibility in how your invoices get into the invoice management software
- Ability to tailor your approval workflows to fit your business rules
- Payment options that work for your business, such as ACH, credit card, check, and international wire transfer
- Two-way integration with your existing finance tech stack
Step 5: Implementation and training
Train your team on the new system and plan a phased transition from your manual processes.
Your solution provider might provide support for implementing the software and training your team.
It's also helpful to have online resources, such as webinars, walk-throughs, and a knowledge base to help with questions that come up later or training new team members.
Ready to improve the way you manage invoices?
Effective invoice management is crucial for maintaining your organization's financial health and operational efficiency.
By using invoice management software, your company can overcome common challenges associated with manual invoice management, improve efficiency and security, and reduce costs.
BILL offers a streamlined solution for your invoice management processes. Our platform can help you efficiently and securely capture invoice data, get the necessary approvals, and submit payments.
Learn more about BILL's invoice management features and discover how easy it can be to transform your business. Remember, the goal is not just to manage invoices but to do so in a way that contributes to the overall strategic objectives of your organization.
